1. Definition: The various quantities of a good or service that producers are willing and able to sell at all prices at a particular time. SUPPLY

2. WHY DO PRODUCERS PRODUCE? Two Words. Profit Motive. **Remember the invisible hand? Demand drives Supply…

3. LAW OF SUPPLY As P ↑, Q S ↑ As P ↓, Q S ↓ Opposite of the law of demand Why? Example…

6. Mr. Bull’s Soccer Lessons How many lessons might I give if I was able to charge….. $5/hr? $15/hr? $40/hr? As I am able to charge more, production becomes more valuable relative to other tasks. What is my opportunity cost of soccer lessons?

7. SUPPLY SCHEDULE/CURVE Notice… opposite of Demand curve Upsloping Individual Supply vs. Market Supply

8. THE LAW OF SUPPLY  Reasons for a Change in Quantity Supplied: (Always associated with a change in a product’s own price) 1.Assuming firms’ costs are constant, at higher prices, producers make more profits. - Economies of Scale 2.When prices rise, firms substitute production of one good for another.

9. Change in quantity supplied (a movement along the curve) Change in Quantity Supplied: Movement along the Supply Curve Price (per unit) Quantity supplied (per unit of time) S0S0 $15 A 1,2502,300 B

10. SHIFTS IN SUPPLY VERSUS MOVEMENTS ALONG A SUPPLY CURVE  If the amount supplied is affected by anything other than a change in price, there will be a shift in supply.

11. Shift in Supply Price (per unit) Quantity supplied (per unit of time) S0S0 Shift in Supply (a shift of the curve) S1S1 $15 AB 1,2502,300

12. 7 REASONS FOR A CHANGE IN SUPPLY 1. Change in the cost of inputs Land, labor, capital 2. Change in Productivity 3. Change in Technology Ask Henry Ford… 4. Change in Number of Sellers Duh.

13. 7 REASONS FOR A CHANGE IN SUPPLY 5. Change in Taxes or Subsidies 6. Change in Market Expectations Future prices/demand/conditions 7. Change in Government Regulation

14. “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” -Ronald Reagan

15. ELASTICITY OF SUPPLY Elastic – easy/quick to produce – lower marginal cost for each additional unit produced Inelastic – harder/slower to produce – higher marginal cost for each additional unit produced Elasticity of supply increases as producers have more time to adjust to a price change Ex: 1979 2011

16. FACTORS AFFECTING ELASTICITY OF SUPPLY 1.Ease of Production easier = more elastic 2.Responsiveness to price change quicker adjustment = more elastic 3.Time more time to adjust = more elastic

17. ELASTICITY CHANGES OVER TIME Market Period – immediately after a change in price Perfectly inelastic supply Short Run – up to a few months after a change in price Inelastic supply Long Run – many months/years after a price change Elastic supply

19. PROFIT MAXIMIZATION Profit = Total Cost = Fixed Cost + Variable Cost Fixed vs. Variable… examples? Fixed – rent, loan payments, utilities Variable – labor, raw materials Firms want TR > TC… But how do they maximize this profit? MARGINAL ANALYSIS!!!! Total Revenue - Total Cost

20. PROFIT MAXIMIZATION Marginal Cost = ∆ Price of Inputs / ∆ Output MC = ∆ Variable Cost/ ∆ Quantity Marginal Revenue = Price Profit Maximization: As long as MR > MC, producers will continue to produce. Production Function.notebook

22. TEST TOPICS Definition/Law of Supply Supply Curve Market Supply Change in Supply 7 factors Elasticity of Supply 3 factors 3 Stages of Production Profit Maximization MR = MC